Nonprofit Merger As an Opportunity for Survival and Growth
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MergeMinnesota Nonprofit merger as an opportunity for survival and growth Ron Reed, Project ReDesign, MAP for Nonprofits Susan Dowd, Library Strategies Consulting Group, The Friends of the Saint Paul Public Library Acknowledgments After 30 years of being involved in some way We thank our Project ReDesign Advisory Committee with nonprofit mergers, our completion of for their support and guidance over the last two MergeMinnesota is like a dream come true. I hope years: the reader will find this work as useful as I found it rewarding to create. So many helpful hands and Emil Angelica, Community Consulting Group minds went into its production. I would like to Kate Barr, Nonprofits Assistance Fund thank everyone whom my limited space will allow. Ellen Brown, Community Volunteer Heidi Neff Christianson, Moore, Costello & Hart First, I am very grateful to MAP and its Executive P.L.L.P. Director Judith Alnes for giving me the opportu- Patricia A. Cummings, Jay and Rose Phillips nity to develop Project ReDesign. Her support and Foundation (retired) guidance throughout this pilot project have been Louise Dickmeyer, People Driven Performance immeasurable. Jacqueline Hill, Christensen Hill, Ltd. Elizabeth Johnson, Greater Twin Cities United Way I thank Susan Dowd, co-author of MergeMinnesota Steve Lassiter, Strategeries and a consultant for Library Strategies Consulting Ken Middlebrooks, Land O’ Lakes (Retired) Group, for her exceptional writing, editing and Sondra Reis, Minnesota Council of Nonprofits constructive advice throughout the development Carolyn Roby, Wells Fargo Foundation process. We are especially indebted to her for Scott Stankiewicz, Mutual of America her exemplary work on the Literature Search and Gretchen M. Stein, Ph.D., The Sand Creek Group Ltd. Review. I thank Laura Ayers, consultant for The Center for We are immensely grateful to the following funders Organizational Development. Her thorough and that have provided ongoing support to Project thoughtful work on the Expert Interviews has ReDesign: added immensely to this project. The F.R. Bigelow Foundation I also want to acknowledge former Project The Otto Bremer Foundation ReDesign Director Suzanne Pearl, not only for her The Greater Twin Cities United Way work helping organizations merge during the first The A.J. Huss Foundation two years of our project, but also for her initial The John S. and James L. Knight Foundation writing and editing of the Merger Tool Kit. The McKnight Foundation The Medtronic Foundation My thanks to graphic designer Becky Andrews for Mutual of America using her fine talents to enhance the clarity and The Nicholson Family Foundation usability of this publication. The Jay and Rose Phillips Family Foundation The Saint Paul Foundation I would also like to take this opportunity to wel- The Tozer Foundation come Renae Oswald-Anderson, Project ReDesign’s The Wells Fargo Foundation new Director, to MAP for Nonprofits. I look for- ward to working with her as we expand this ser- vice to the community. Ron Reed, Consultant Project ReDesign I want to recognize La Piana Consulting for their MAP for Nonprofits extensive contribution in the area of strategic restructuring. Their leadership, consultation and written materials have proven invaluable to count- less nonprofit organizations that are considering This publication was made possible though gener- major reorganization. ous funding from The Wells Fargo Foundation and The Greater Twin Cities United Way. MergeMinnesota Nonprofit merger as an opportunity for survival and growth Ron Reed, Project ReDesign, MAP for Nonprofits Susan Dowd, Library Strategies Consulting Group, The Friends of the Saint Paul Public Library Copyright © 2009 by MAP for Nonprofits Contents Introduction 5 About this Publication 5 About MAP for Nonprofits 6 About Project ReDesign 7 What is Realignment? 8 Thinking about merger 11 The Pain is Deep 11 What is Merger? 13 Why Merge? 13 What Makes a Strong Merger Partner? 15 Common Merger Mistakes and How to Avoid Them 16 Project ReDesign’s merger model 19 Project ReDesign’s 10-Step Merger Decision-Making Process 19 Project ReDesign’s Merger Tool Kit 23 Merger implementation 35 Implementation Planning 36 Implementation Categories 36 Merger evaluation 37 Vignettes of nonprofit mergers in Minnesota 39 Two Charter Schools 40 Two Community Development Organizations 40 Two Nonprofits That Wished to Broaden Services 41 Two Organizations Providing Mental Health Services 42 Appendices 43 APPENDIX 1 Experts Interviewed and Interview Questions 45 APPENDIX 2 Literature Review 47 APPENDIX 3 Full Bibliography 67 Introduction About this Publication n April of 2007, MAP for Nonprofits launched Project ReDesign—a Ithree-year initiative to help nonprofit organizations with organi- zational realignment, including mergers, program transfers, joint operating agreements, joint ventures, parent-subsidiary relation- ships, and dissolution. When we started Project ReDesign, we didn’t know that an eco- nomic downturn was around the corner and about to reduce every income stream on which nonprofit organizations rely. We didn’t know that the number of people in need would increase dramat- ically all across the community. And we didn’t know how many organizations would need to awaken to the notion that merg- ers might be the best strategic path to preserve the services they deliver to the community. What we did know was that we wanted to help nonprofit board members and nonprofit executives see that mergers and other forms of realignment could be positive strategic opportunities to promote organizational sustainability and preserve services. This publication tells that story. By familiarizing nonprofit leaders with the language and processes that accompany organizational realignment, we hope that this 5 foreign territory can become familiar and less forbidding. Indeed, we hope it strengthens awareness that realignment may be the nonprofit sector’s best hope to continue serving the community with fewer financial resources. While we realize that organizations are working together in a vari- ety of ways, such as sharing back-office functions, contracts for ser- vice, and formal collaborations, this publication primarily focuses on nonprofit mergers. It is the result of three major areas of experi- ence and investigation: 1. The experience of MAP’s and Project ReDesign’s team of merger experts 2. Interviews with local and national experts in the area of non- profit mergers 3. A search and review of current published literature about non- profit mergers The current economic environment and its challenges are inspir- ing many nonprofits to look at new ways of doing business, and merger is becoming an increasingly popular option. We hope that this resource will help readers begin to consider the benefits and complexities of nonprofit mergers and to view them, not as evi- dence of failure in the present, but as opportunities for success in the future. Judith Alnes, Executive Director MAP for Nonprofits About MAP for Nonprofits MAP for Nonprofits has provided innovative, high-quality, cost- effective management consultation and support to Twin Cities non- profit organizations for 30 years. In 1979, a group of leaders from area corporations and community institutions joined in recognition that the nonprofit sector needed more management help to build a vital and healthy community. MAP’S Mission: MAP unleashes the power of the nonprofit sector in the community by increasing the capacity of individual nonprofit organizations to achieve their missions and by providing leadership for the effective management of the sector. Today, MAP is a leading resource for management consultation and board recruitment for nonprofit organizations across the Twin Cities metropolitan area. MAP uses a combination of its own staff, community consultants and volunteers to help more than 500 Twin Cities’ nonprofits annually. 6 In January 2007, MAP teamed up with merger consultant Ron Reed, retired CEO of Family Service of Saint Paul, who brought extensive nonprofit merger experience to MAP. During his 28-year tenure at Family Service, five nonprofits joined that organization. Later, as an independent merger consultant, Reed helped several other Twin Cities nonprofit organizations merge. Reed was invited to join MAP’s staff and, together with MAP Executive Director Judith Alnes, they developed a comprehensive new service. Thus, Project ReDesign was born. About Project ReDesign Project ReDesign helps nonprofit organizations improve their sus- tainability through realignment, a term that describes many kinds of formal collaborations. These collaborations include full merger, as well as major organizational changes. Project ReDesign encourages, guides and supports nonprofits that are considering realignment by: s Guiding a nonprofit organization through a continuum of merger options, such as merger, program transfer, joint ven- tures or parent-subsidiary relationships. s Providing resources and support to help a nonprofit organiza- tion think boldly, evaluate options, identify opportunities, com- municate effectively and make sound decisions. s Offering a merger model that consists of a 10-Step Merger Decision-Making Process and a Merger Tool Kit for use throughout the merger process. Project ReDesign breaks the merger process into four phases: 1) Assessment, 2) Planning and Decision Making, 3) Implementation and 4) Evaluation. Together, Project ReDesign and MAP have the expertise to assist with each and all of these phases of merger. The funding challenges